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#utility-theory
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#economics
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#risk-management
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Consider a risk loving agent who has a utility function that takes the form U = I², where I is
income. Imagine that this agent can make $100 with 90% probability and $0 with 10% probability. What is ?
Brian Mukungu
Mar 19
Consider a risk loving agent who has a utility function that takes the form U = I², where I is income. Imagine that this agent can make $100 with 90% probability and $0 with 10% probability. What is ?
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ChatGPT
Mar 19
To find the expected utility for the risk loving agent, we first need to calculate the expected value of income:
Expected income = (0.9 * $100) + (0.1 * $0) = $90
Now, we can plug the expected income into the utility function:
U = $90² = $8100
Therefore, the expected utility for the risk loving agent is $8100.
Expected income = (0.9 * $100) + (0.1 * $0) = $90
Now, we can plug the expected income into the utility function:
U = $90² = $8100
Therefore, the expected utility for the risk loving agent is $8100.
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